Sobriety and Anxiety on Wall Street

It could be said that sobriety and anxiety are consuming Wall Street as we head into the final weeks of the year, with stocks trending slightly down around the globe to close out several days of seesaw activity.

What’s making traders so nervous? Fears of inflation and concerns about the spread of the wildcard omicron COVID-19 variant.

If the pandemic has taught us anything, it’s to expect the unexpected. That’s why at Adviser Investments we continue to believe that building a diversified portfolio is the best and most prudent way to navigate the global investment markets.

But we get it: Diversification isn’t always an easy lift. In 2021, bonds haven’t made money and foreign markets have lagged behind U.S. counterparts. Even focusing on U.S. stocks, you would have had to make some very concentrated bets to get anywhere near the performance of the S&P 500 index: Seven companies are responsible for nearly half of the index’s return.

Why stick with diversification? Because it allows you to stay invested in an uncertain world where predicting the future is impossible. Our belief is that it’s better to hold a portfolio that can perform reasonably well in multiple scenarios than to bet the farm on one outcome.

Specter of Tighter Fed Rattles Tech

Federal Reserve policymakers confirmed on Wednesday that they would wind down their stimulative bond-buying program at a faster clip and (likely) hike interest rates not once but four times over the next 18 months. This stance reflects a Fed concerned about lingering high inflation—and moving to combat it. The central bank’s clear communication and telegraphing of its intentions helped prepare traders for the policy pivot and stocks rallied.

After a day’s consideration, however, traders must have remembered that higher interest rates could possibly put the brakes on the rapid growth of many tech companies—and that the sky-high valuations of some of 2021’s standout performers might not be justified. In Thursday’s trading, Apple shares dipped 3.9%, Amazon declined 2.6% and Tesla lost 5.0%, while the tech-heavy NASDAQ was down 2.5% (compared to drops of 0.9% for the S&P 500 and 0.1% for the Dow Jones Industrial Average).

As long-term investors, we generally advise our clients to ignore the day-to-day swings in the price of any individual stock. But when it comes to Apple—whose $2.83 trillion market cap is more than the gross domestic product of all but four countries—we may be persuaded to make an exception.

The bulk of the S&P’s performance this year has been driven by a small handful of tech stocks, including Apple, which was up 29.8% through Thursday night. If a higher interest-rate environment in 2022 slows the growth of these tech stocks, the market as a whole may take a pause or at least shift allegiance from the mega-techs elsewhere. Investors have been riding high on the shoulders of giants—and they may get more than a little bruised if those titans should fall. This is yet another reason why we believe in diversification.

 Chart of the Week: Are Jobs Back?

We monitor a wide range of data to form our outlook on the market and the broader economy—here’s one indicator our analysts have found enlightening or curious.

By Director of Research Jeff DeMaso

On the surface, the jobs market appears healthy, as the unemployment rate fell from 6.7% to 4.2% in 2021. However, a deeper dive reveals that millions of people have yet to return to the workforce. The employment-to-population ratio (a broad measure of the state of the jobs market) is still well below where it was before the pandemic; it’s currently around the level seen following the depths of the Great Financial Crisis in 2009 and 2010.

Financial Planning Friday
Advanced Strategies for Family Gifting and Lending

Gifting money and offering intrafamily loans can be excellent ways to invest in a loved one’s future, whether during the holidays or any time of the year. But before you write that check, there are a few tax and financial planning points to bear in mind.

Direct gifting. The IRS has strict rules on how much you can gift untaxed. In 2021, the gift tax exclusion is $15,000 per person per year (or $30,000 per person annually if you file jointly with a partner or spouse). All in, the total lifetime gift tax exclusion for 2021 is $11.7 million for individuals.

That said, there are a few ways to gift more than the IRS rule allows when it comes to family.

For instance, the marital deduction allows you to give as much money as you want to your legal spouse without any gift or estate tax liabilities. Similarly, an irrevocable marital trust uses the unlimited marital deduction to pass your assets, including cash, on to your surviving spouse tax-free upon your death.

Another strategy to gift above the limit is to direct the funds toward the education or medical expenses of family members. For instance, you can make a five-year accelerated gift, totaling $75,000 ($150,000 for married couples), to a beneficiary’s 529 plan. This eliminates your $15,000 annual gift exclusion for the recipient for the next five years, but it allows the money to grow tax-free for a longer period of time.

Intrafamily loans. Most of us have visited the Bank of Mom and Dad at some point in our lives, but anything above $15,000 starts to eat away at the lifetime gift tax exclusion mentioned above. That’s where the very attractive Applicable Federal Rate (AFR) comes in.

An intrafamily loan allows family members to borrow money at a special interest rate, known as the AFR, without tax implications (though you do have to report the interest from AFR loans on your tax return). The AFR percentage depends on the duration of the loan: Short-term (less than three years), mid-term (three to nine years) or long-term (more than nine years). The AFR is typically much lower than the interest rate charged by a bank or other lenders.

This strategy can be used to help a family member purchase a home or even pass along a family business. And the “lender” then has an opportunity to use their annual gift limit ($15,000) to help the borrower pay back part of the loan.

This strategy can also be used to pass on assets—particularly if the borrower can invest the money and realize a rate of return that’s higher than the loan rate. This planning approach often employs a family trust. The trust would invest the money and repay the loan, and the remaining assets would be protected within the trust and distributed to the designated beneficiaries.

Clearly, some of these financial planning strategies are complex. As always, please contact your wealth management team if you have any questions about the best gifting option for your circumstances. We’re happy to help.

Ask Us a Question!

We’re always interested in the topics or concerns you might like us to comment on. As much as we try to cover the investment and economic fields every week, we know there’s still more that you might want to hear about. Ask us a question about investing, the markets or financial planning and one of Adviser Investments’ experts will answer it in a future edition of The Week in Review. CLICK HERE NOW TO POSE YOUR QUERY.

Podcast: Crucial Year-End Portfolio Moves for Tax-Saving

It’s been a hectic year—and a positive one for the U.S. stock market. Taking the time to fine-tune your portfolio now may help prevent headaches (and tax bills) come April.

In this episode of The Adviser You Can Talk To Podcast, Portfolio Managers Charlie Toole and Steve Johnson are joined by Data Visualization Analyst Devin Murray to talk techniques for tuning up your portfolio, including how a look under the hood of your holdings may uncover unexpected tax savings. They discuss:

• When and how to rebalance your portfolio
• Tax-loss harvesting at the lot level
• Avoiding common mistakes when it comes to fund distributions
• How ETFs can help avoid wash sale troubles

Before you get wrapped up in all the holiday merrymaking, make sure to take one last lingering look at your bottom line. A few tweaks to your portfolio before year-end may make a world of difference come April 15. Click here to listen now!

Adviser Investments in the Media

This week, Chairman Dan Wiener spoke to Citywire about Vanguard’s testing of fractional share trading for ETFs. Meanwhile, over the last week-plus, Chief Investment Officer Jim Lowell was a repeat guest on Fox Business, most recently discussing inflation and omicron fears. At the end of last week, he covered how tensions over Russia and Ukraine might impact markets.

In this week’s Market Takeaways, Research Analyst Liz Laprade discussed how few stocks are buoying the S&P 500’s stellar returns, while Steve Johnson observed that we’ve seen a shift in market trends this week and gave his take on what’s behind it.

Looking Ahead

Next week, Adviser Investments and markets will be closed on Friday for the Christmas holiday, so keep an eye on your inbox Thursday evening for The Week in Review. The holiday-shortened week will still be packed with important data, including leading economic indicators, Q3 GDP, consumer confidence and sentiment surveys, inflation gauges, durable goods and capital goods orders, new and existing home sales, and personal income, spending and savings reads.

As always, please visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.